Over the past few weeks, we have gotten a bunch of questions from clients in regard to real estate transactions and some of the terms that inevitability come up in almost every deal. This article aims to provide a quick and easy to understand guide to some of the terms we see most often.
This is a type of concurrent real estate ownership reserved for married couples. The important distinctions with this type of ownership are as follows:
- Not recognized in Wisconsin – but the same goals can be achieved with a contract that is recorded with the real estate
- Reserved for married spouses
- Creditors can only attach (a\k\a come after) the property for a joint debt of the spouses, not an individual debt of either one
- Once created, a tenancy by the entirety cannot be terminated without the consent of both spouses.
This is also a special type of ownership of both real estate and personal property that is reserved for individuals working together in a partnership (of the business variety). The important distinctions with this type of ownership are as follows and will largely be decided by the terms of the partnership agreement the partners have signed:
- Reserved for Partners in a business partnership
- Breaks down the “rights of ownership” in the partnership assets as follows:
- Economic – a right to participate and share in the profits and surplus
- Management – a right to manage the affairs (i.e. vote) of the partnership
- Ownership – the right to “own” partnership assets, assign them, and the ability of creditors to attach to said assets for an individual partner’s debt
Tenancy in Common is the most “common” (ha!) form of land ownership. The important distinctions are as follows:
- Between 2 or more people!
- Each owner (tenant) has the ability to transfer or assign their interest in the property to someone else
- Each tenant can own different percentages of the property. For example, we could own property together – Collin: 20% You: 80%
- There is no right of survivorship – when one tenant passes away, their ownership interest in the property is transferred via their Will. (i.e. the other tenant does not get my share of the property automatically.)
- Everyone, regardless of ownership percentage, is allowed full use and enjoyment of the property – in other words, I might only own 20%, but I still get to have a party at the property with all my friends!
If you are married in Wisconsin, your primary residence is probably owned by you and your spouse, as joint tenants, with the right of survivorship – here are the details:
- Ownership between 2 or more people!
- Each person owns an equal interest in the property – for example, if there are 2 owners – each owns 50%; if there are 3 owners – each own 33.33%; if there are 4 owners – 25%
- There is a right of survivorship – meaning, when one joint tenant passes away, their ownership interest automatically transfers (without a Will) to the other joint tenants. If you die first, your spouse will automatically own the house without a court or lawyer having to get involved.
- The joint tenancy can be terminated during life and will then convert to a tenancy in common. This is an important distinction from Tenancy by the Entirety that we discussed above.
A future interest is a legal right to property ownership that does not include the right to present possession or enjoyment of the property.
So for example, if a minor child has land in trust that they can’t access until the age of 25, then the minor has a “future interest” in the property.
Fee Simple Absolute
If you ever have looked at the title policy from your last real estate transaction, the words “fee simple” are on there for sure. This is a fancy word(s) that means “I own absolutely everything!” (as it relates to this property)
The greatest possible estate in land, wherein the owner has the right to use it, exclusively possess it, commit waste upon it, dispose of it by deed or will, and take its fruits. A fee simple represents absolute ownership of land, and therefore the owner may do whatever he or she chooses with the land.
Fee Simple Determinable
Fee Simple Determinable means ownership in land that will end automatically when a stated event or condition occurs and revert to the grantor or the heirs of the grantor.
So for example, I could sell you land to open a museum – and state in the sale documents, “Buyer may keep the land and own it, as long as it is used as a museum. Once it no longer is a museum, it reverts back to me.” This is commonly used with historic buildings, or in legacy estate planning (i.e. very wealthy individuals.)
I bet you know this one already because Life Estates used to be a very common estate planning tool used in Wisconsin. Due to some changes to how Estate Recovery is administered, though, Life Estates have become less useful in recent years.
A Life Estate works like this:
Mom and Dad own a house. They have discussed, and they know they will leave the house to their son, Billy, when they pass away. However, rather than wait until that happens – Mom and Dad decide to transfer the house to Billy now – while retaining a “Life Estate” in the property. A “Life Estate” allows Billy to own the property “on paper” but allows Mom and Dad the right to live in the house until both of them pass away. An easy way to remember is, “I get to live my LIFE in my ESTATE and when I die, the property is Billy’s.”
Life Estates are a great tool to execute some of your estate plan prior to passing away and to help manage the inter-generational transfer of wealth by spreading it out over time. Life Estates were also a popular Title 19 planning tool (nursing home planning) but as of 2014, Life Estates are now subject to Estate Recovery in Wisconsin – so their flexibility is limited. More information is available here.
We handle a ton of transactional work at OGS – whether it be an entire business, a piece of valuable intellectual property, or a piece of land. If you have real estate and have questions – want to sell – or want to integrate your property into a comprehensive plan for the future – we can help!